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Endowment and Foundation Fourth Quarter Survey Results - Asset Allocation Study

February 3, 2015 / by NEPC

NEPC’s Endowment and Foundation Practice Group is proud to present the results of our Q4 Survey, polling the endowment and foundation community on their thoughts regarding asset allocation trends, sentiment related to the economy as well as market performance. 

“Overall, endowments and foundations feel very confident about the US economy and have a favorable outlook for domestic equity markets this year,” said Cathy Konicki, Partner and head of NEPC’s Endowment and Foundation Practice. “More than three-quarters of respondents feel the economy is in a better place today than it was this time last year and US equities are forecasted to be the top asset class performer this year, with 95% of respondents expecting the S&P 500 to end 2015 in positive territory.”

Despite strong feelings at home, endowments and foundations are actually planning to decrease their allocation to US equities this year. The theme of reducing allocations carries through most traditional asset classes, with respondents favoring alternatives in 2015. 

Private markets is the asset class expected to see the biggest increase this year, with 33% of respondents  favoring an increased allocation, followed closely by hedge funds/absolute return strategies and real assets (liquid and illiquid).

“Given the strong multi-year bull run we’ve experienced in domestic equities, we’re not surprised that endowments and foundations are dialing down their allocation and shifting to other asset classes,” said Scott Perry, Partner in NEPC’s Endowment and Foundation Practice. “Increasing exposure to investments that have recently experienced significant gains has the potential to disappoint over the long-term, so some moderation might be in order right now.” 

Beyond asset allocation changes, the Q4 NEPC survey took a look at other high-level themes and issues on the minds of endowments and foundations this year, including:

Potential Concerns: The majority of investors continue to state that a slowdown in the global economy is the largest threat to their near-term investment performance. However, the number of those placing this as their highest concern has fallen 14% from the previous quarter.

  • One new area of concern this quarter is Global Deflation, which has been gaining momentum in recent quarters

Fixed Income Outlook: The majority of respondents expect interest rates to increase this year. Roughly a third of those surveyed think rates, based on the 10-year Treasury note, will rise by up to 50 basis points by the end of 2015, with another third expecting them to rise 50 – 100 basis points. Yet 25% expect rates to remain the same.

  • 70% of respondents are maintaining their fixed income allocation in 2015, while 14% are increasing it and 16% are decreasing
  • In Q4 2013, a third of investors said that Fed tapering was a primary threat to their near-term investment program, though today that has dropped to 5%

Currency Hedging Strategies: In one of the most lopsided segments of the survey, over 80% of respondents don’t currently hedge currency risk, and the vast majority have no plans to do so this year despite the strength of the U.S. dollar.

  • Of those that do plan to hedge currency risk this year, 44% plan to do so through their investment managers

Inflation Hedging Strategies: Given an increase in fear about the potential for global deflation, it’s fitting that three-fourths of respondents are looking to maintain their inflation hedging allocation this year.

  • However, of those looking to change, the majority will increase both liquid and illiquid real assets
  • This may be the result of investors seeing an opportunity due to the recent dislocation of energy prices

To view the Inforgraphic image of the results click here

Please click here for full results to the survey.

Topics: Endowments & Foundations

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